The euro zone's manufacturing sector sank deeper into recession in October as output, employment and new business orders fell after the September 11th atrocities in the US.
The Reuters-NTC purchasing managers' index (PMI) dropped to 42.9 from 45.9 in September, falling for the seventh successive month and recording its steepest monthly decline in the survey's four-year history.
Economists said the survey suggested the 12-nation euro zone, like the US and Japan, was heading for outright recession and made it virtually certain that the European Central Bank would cut interest rates next week.
The ECB's 18-member policymaking council will announce its decision on Thursday, the same day as the Bank of England and two days after the US Federal Reserve. "Given recent data, all three will surely cut rates," said Mr Luigi Buttiglione, economist at Barclays Capital.
The fall in the euro-zone PMI was particularly striking, since the survey is not a measure of business expectations or sentiment but reflects current conditions for manufacturers. Mr Buttiglione said it suggested the euro zone's gross domestic product, expected to have shrunk at a quarter-on-quarter rate of about 0.1 per cent in the third quarter, would fall by even more in the fourth quarter of this year.
Mr Neville Hill, economist at Credit Suisse First Boston, said the collapse in input prices captured in the October survey showed inflationary pressures were fading fast. "The economic outlook in the euro area is continuing to deteriorate a month after the attacks on the US, and producers' pricing power is almost at an all-time low," Mr Hill said.
